2020 (6) TMI 98 - AT - Income Tax

Depreciation in relation to assets leased out by the assessee given under finance lease - HELD THAT - Assessee has produced a few of them and the Tribunal considered it proper that at least some more should be produced for examination before the AO and the Tribunal restored the matter back to the file of the AO for fresh decision in the light of the judgment in the case of ICDS Vs CIT 2013 (1) TMI 344 - SUPREME COURT with direction that if the terms and conditions mentioned in the lease agreement are similar to the terms and conditions that are mentioned by the Hon ble Apex Court in the case of ICDS Vs CIT(supra) and if there is no material variation in the context then depreciation has to be granted to the assessee as claimed. In the present year also, we restore this matter back to the file of AO for fresh decision with similar direction. Ground no.1 2 stands allowed for statistical purposes.

2021 (4) TMI 1361 - AT

Issues Involved:
1. Disallowance of depreciation on assets leased under finance lease.
2. Disallowance of depreciation on the opening written down value of assets leased under finance lease.
3. Rejection of economic analysis for transfer pricing related to import of leasing equipment.
4. Transfer pricing adjustment on purchase of fixed assets.
5. Double disallowance of depreciation due to transfer pricing adjustment.
6. Determination of arm's length price (ALP) for international transactions.
7. Use of comparables and criteria for transfer pricing analysis.
8. Use of single-year data versus multiple-year data for transfer pricing.
9. Exclusion of depreciation from cost base in transfer pricing analysis.
10. Inclusion of non-operating expenses and income in transfer pricing analysis.
11. Computation of return on capital employed (ROCE) for comparables.
12. Application of filters for comparability in transfer pricing analysis.
13. Proportional adjustment of taxable income based on international transactions.

Detailed Analysis:

1. Disallowance of Depreciation on Assets Leased Under Finance Lease:
The assessee contended that the AO erred by disregarding the ownership status of Cisco Capital India regarding assets leased under finance lease, leading to the disallowance of depreciation. The Tribunal noted that in earlier years, the issue was restored to the AO for fresh adjudication with directions to examine the lease agreements against the terms considered by the Supreme Court in ICDS Ltd. v. CIT. The Tribunal directed the AO to follow a similar approach for the current year, allowing the assessee's appeal for statistical purposes.

2. Disallowance of Depreciation on Opening Written Down Value:
The assessee argued that the AO incorrectly disallowed depreciation on the opening written down value of assets leased under finance lease. The Tribunal, referencing its earlier order, restored the matter to the AO for fresh adjudication, directing the AO to verify the lease agreements' terms and conditions against those considered by the Supreme Court in ICDS Ltd. v. CIT. The appeal was allowed for statistical purposes.

3. Rejection of Economic Analysis for Transfer Pricing Related to Import of Leasing Equipment:
The assessee claimed that the AO/TPO erred by rejecting its economic analysis using the Comparable Uncontrolled Price (CUP) method. The Tribunal, citing its earlier decision, restored the matter to the AO for fresh adjudication, instructing the AO to independently determine the Most Appropriate Method (MAM) for ALP determination without being influenced by the assessee's transfer pricing study.

4. Transfer Pricing Adjustment on Purchase of Fixed Assets:
The Tribunal noted the assessee's argument that the transfer pricing adjustment on the purchase of fixed assets should be proportionate to the international transaction value with the Associated Enterprise (AE). The Tribunal directed the AO to reconsider the methodology for determining ALP, emphasizing the need for a proportionate adjustment based on the international transaction value.

5. Double Disallowance of Depreciation Due to Transfer Pricing Adjustment:
The assessee contended that the transfer pricing adjustment resulted in a double disallowance of depreciation. The Tribunal instructed the AO to ensure that the adjustment does not lead to double disallowance, reiterating the need for fresh adjudication.

6. Determination of Arm's Length Price (ALP) for International Transactions:
The Tribunal directed the AO to independently determine the MAM for ALP determination, considering the assessee's arguments and ensuring a proportionate adjustment based on the international transaction value.

7. Use of Comparables and Criteria for Transfer Pricing Analysis:
The assessee challenged the AO/TPO's acceptance and rejection of certain comparables based on unreasonable criteria. The Tribunal instructed the AO to reconsider the comparables and criteria used, ensuring a fair and reasonable analysis.

8. Use of Single-Year Data Versus Multiple-Year Data for Transfer Pricing:
The assessee argued against the AO/TPO's use of single-year data for transfer pricing analysis. The Tribunal directed the AO to reconsider the use of multiple-year data, ensuring compliance with transfer pricing documentation requirements.

9. Exclusion of Depreciation from Cost Base in Transfer Pricing Analysis:
The assessee contended that the AO/TPO erred by excluding depreciation from the cost base. The Tribunal instructed the AO to reconsider the cost base, including depreciation, for a fair transfer pricing analysis.

10. Inclusion of Non-Operating Expenses and Income in Transfer Pricing Analysis:
The assessee challenged the AO/TPO's inclusion of non-operating expenses and income in the transfer pricing analysis. The Tribunal directed the AO to reconsider the inclusion, ensuring an accurate computation of the Profit Level Indicator (PLI).

11. Computation of Return on Capital Employed (ROCE) for Comparables:
The assessee argued that the AO/TPO erroneously computed ROCE for comparables. The Tribunal instructed the AO to re-compute ROCE accurately, considering the correct methodology and data.

12. Application of Filters for Comparability in Transfer Pricing Analysis:
The assessee contended that the AO/TPO did not adopt appropriate filters for comparability. The Tribunal directed the AO to reconsider the filters used, ensuring a fair and reasonable comparability analysis.

13. Proportional Adjustment of Taxable Income Based on International Transactions:
The assessee argued for a proportional adjustment of taxable income based on the value of international transactions with AE. The Tribunal instructed the AO to ensure that any addition to taxable income is proportionate to the international transaction value, allowing the appeal for statistical purposes.

Conclusion:
The Tribunal restored various issues to the AO for fresh adjudication, emphasizing the need for a fair and reasonable analysis, compliance with legal precedents, and accurate computation methodologies. The appeal was allowed for statistical purposes, directing the AO to follow the Tribunal's guidance and ensure a just resolution of the issues raised by the assessee.

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